- Japanese refiners have stepped up chartering VLCCs in the spot market due to changing trade patterns, on the back of rising US crude exports.
- Japanese refiners chartered 29 VLCCs from the spot market during January-April, compared with 17 a year earlier.
- US crude accounted for 3.5% of Japan’s total crude imports of around 3.18 million b/d over January-February, up from 0.7% a year earlier.
- Japan’s JXTG Nippon Oil & Energy and Cosmo Oil are among the regular importers of crude from the US and Mexico.
- The Japanese government renewed its shipping insurance cover of up to Yen 932.7 billion ($8.36 billion), for each tanker carrying Iranian oil for the current fiscal year.
According to an article by Platts, Japanese refiners have stepped up chartering VLCCs in the spot market amid growing imports of US crude increasing voyage length and boosting shipping demand.
Changing chartering practices
Based on shipping industry sources in Tokyo and Singapore, this is a departure from the country’s chartering practices that have traditionally favored term contracts. It also shows how changing trade patterns, on the back of rising US crude exports, are impacting the supply chain.
Japanese refiners chartered 29 VLCCs from the spot market during January-April, compared with 17 a year earlier, according to broker estimates assessed by S&P Global Platts. The total reached 12 spot VLCCs in December, the highest for any month last year. Spot charters in some months are equivalent to over 10% of the Japanese VLCC fleet, a shipbroker said. Others said a Japanese charterer covered more than 40% of its total VLCC requirements from the spot market in 2018.
The US emerges as the biggest taker
The US has taken up a bigger share of Japan’s crude imports as Iran imports have declined since the sanctions. US crude accounted for 3.5% of Japan’s total crude imports of around 3.18 million b/d over January-February, up from 0.7% a year earlier, according to Ministry of Economy, Trade & Industry data. At the same time, Iran’s share slumped to 2% from 6%.
US crude voyages take twice as long as trips from the Middle East, which has tied up an increasing number of vessels owned by Japanese shipowners and their time-chartered tanker fleet. Additionally, the business opportunity for spot chartering of VLCCs from non-Iranian crude producers in the Middle East has expanded.
VLCCs face logistic issues
Most of the spot VLCC charters were hired for cargoes from Saudi Arabia and other Persian Gulf countries outside of Iran, shipbrokers said. Due to logistical issues, if the time chartered VLCCs are queued at the load or discharge port, ships are taken from the spot market to cover the next cargo stem nominations.
Japan’s JXTG Nippon Oil & Energy and Cosmo Oil are among the regular importers of crude from the US and Mexico. When crude prices are conducive, JXTG loads one time-chartered VLCC each month from the US, brokers, and charterers said.
Iran sanctions import
US sanctions against Iran’s oil exports in November have not just forced Japan to shift towards US crude, but also impacted shipping, as vessels dedicated to Iranian trades cannot be used elsewhere, further limiting the pool of VLCCs available to Japanese refiners.
Japan continues to import Iranian crude because it’s one of eight countries that received a six-month waiver from US sanctions. The volume has been declining despite the Japanese government providing a pool of VLCCs with insurance cover to call on Iranian ports.
Shipping insurance renewed
Last month, the Japanese government renewed its shipping insurance cover comprising protection and indemnity, or P&I, of up to Yen 932.7 billion ($8.36 billion), for each tanker carrying Iranian oil for the current fiscal year that started April 1.
To be eligible for this cover, and to ensure proper insurance coverage for Iran loadings, Japanese refiners have to use their own or time-chartered Japanese ships to import Iranian crude. They are also unable to tap the spot market for Iranian trades as US primary sanctions prevent commercial charterers from taking that risk.
Benefitting from lower rates
Market participants in Japan caution that spot VLCC charters may slow down, at least until there is more clarity on US sanctions on Iran. The six-month exemption given to countries such as Japan is due to expire early next month.
Meanwhile, Japanese refiners moving to the spot market are benefiting from lower rates. Platts on Thursday assessed the key Persian Gulf-Japan VLCC rate at Worldscale 43.65 compared with w63.5 at the beginning of the year.
Imports from the US are expected to grow and this will keep the time-chartered ships busy, and in turn, keep the demand robust for the VLCCs in the spot market for loadings elsewhere, chartering sources said.
In 2018, Asia was the largest regional destination for U.S. crude oil exports, followed by Europe, while Canada was the largest single destination, according to the US Energy Information Administration.
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